While it’s not as easy as popping online and quickly changing a life insurance beneficiary, life estates can indeed be changed or terminated. It’s best to have responsible legal representation to guide you through the process and, if possible, be on good terms with everyone involved in the transaction.
What Is a Life Estate Deed?
A life estate deed is a form of pre-gifting property to beneficiaries before death. It’s a popular way to avoid the probate process and to let children or other beneficiaries know what part of a estate they will receive. When the owner of the property dies, the beneficiary needs only to file his or her death certificate to establish ownership.
In a life estate deed, the property in question is split between two kinds of parties. One, called the life estate, is gauged depending on the number of years the owner lives. The other, referred to as the remainder interest, or just “a remainder,” transfers to others. Both the remainder interest as well as the life estate are passed on.
Who Is Involved in a Life Estate Deed?
Let’s have a look at the kinds of owners involved in a life estate deed:
- Grantor, or “current owner”: This is the property owner who initiates the creation of the deed and who must agree to the ultimate transfer of the property.
- Life Tenant, or “new owner:” Whoever owns the life estate is the “life tenant.” It may or may not be the same person as the grantor.
- Remainder beneficiary, or “future owner:” This is the person or people who will be given the property in question after the owner dies. The future owner may also be referred to as “the remainderman.”
It’s important to remember that although some of these terms, such as “remainderman,” sound singular, they are gender neutral and may refer to multiple people. For example, if the grantor/life tenant is leaving a certain property to both male as well as female children, there may be more than one “remaindermen.”
How Life Estate Deeds Differ From Other Property Transfer Processes
Most are familiar with the traditional form of leaving property to descendants in a will which goes into effect after a person has died. In a life estate deed, however, the grantor and the remainder beneficiary are viewed as co-owners of the property.
However, it’s not a co-ownership the way we normally understand it, with two people having the right to live and work on a property at the same time. In a life estate deed, the future owner is just that—the future, not current, owner of the property. He or she (or they) do not have any legal rights to possess the property.
You may have seen “reverse mortgages” advertised on daytime television. Life estate deeds are similar, except the property is transferred all at once to the beneficiaries, and money is not usually exchanged. Even though the property is co-owned by the remainderman, he or she may live there, but may not sue to establish a right to do so.
Since the grantor is living on the property, he or she is responsible for its upkeep. While he or she legally may not be removed from the property, he or she must still pay the mortgage in full. Any repairs to the property are still the responsibility of the original homeowner. Perhaps most importantly, the life tenant must continue to maintain home insurance and property taxes as if he or she still owns the property outright.
As you might imagine, life estate deeds are most popular for multi-generational families rather than in business dealings. Many families approach this issue of “shared ownership” differently, depending on the condition of the property, the financial stability of each party involved, and the state of the relationship between the current owner and the future owner.
- Some families decide to renovate or update a home to accommodate a parent aging in place, or to make the property more attractive for future buyers in a way the original owner can still enjoy while he or she is still alive.
- Others agree to split the costs of property taxes and repairs between parent and children, or amongst the beneficiaries only.
- Sometimes, life tenants and future tenants agree that the future tenants will pay for all or most repairs, taxes, and insurance, and then are reimbursed out of the life tenant’s estate once the will is executed.
Life estate deeds can be a stable and comforting way to arrange for the dispersal of one’s estate. They are a popular choice for aging parents who enjoy stable relationships with adult children who live nearby. At the same time, if the person who originally owns the property suddenly decides to sell it, the process can become difficult.
Modifying a Life Estate Deed
Several complications can tangle a life estate deed. They are difficult to change, and require the consent of every one of the beneficiaries. In the event the property owner decides that he or she wants to move to live near faraway grandchildren, for example, he or she must obtain the legal permission of every remainder beneficiary. Divorce, bankruptcy or sudden disability on the part of any one of the remainder beneficiaries can also deeply complicate a life estate deed.
Since the grantor has handed over control of his or her property, he or she cannot change the life estate deed itself unless all of the future tenants agree. Therefore, in order to change or terminate the life estate deed, all of the future beneficiaries must be accessible and with the capacity to legally sign for themselves.
Those who are considering a life estate deed, but who also want to have the ability to change it, might consult their attorney about adding a “power of appointment” clause to the document language. A power of appointment states that the grantor may reduce a beneficiary’s stake in ownership, or change the person entirely. This allows the grantor more power.